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Fitch Assigns Basin Electric Power Cooperative Commercial Paper 'F1+'

Posted on: Wednesday, 20 February 2008, 18:00 CST

Fitch assigns Basin Electric Power Cooperative's (Basin) $550 million Private Placement Commercial Paper (CP) note program 'F1+'. In addition, Fitch affirms Basin's senior secured debt rating at 'AA-.' The Rating Outlook is Stable.

The new commercial paper program is intended to be used primarily as an interim funding mechanism for the development and construction of new power generating facilities, with the notes periodically refunded through the issuance of longer-term debt securities. The unsecured notes, which can have maturities up to 397 days, will rank at least pari passu with all other unsecured debt of Basin. Six financial lenders will provide $550 million of credit support through a revolving loan or other financial arrangement, pursuant to the credit agreement. The notes shall not contain any provision for extension, renewal or automatic rollover. Goldman Sachs and JP Morgan will act as commercial paper dealers. Additional financial support for the commercial paper program and other capital needs of Basin will come from a $415 million term loan facility with Farm Credit System, other loan arrangements and cash and investments on hand.

The 'AA-' and 'F1+' ratings illustrate Basin's above average credit factors in many key areas. Overall, the credit compares favorably with similarly rated municipals and G&T cooperatives as a result of its above average credit areas (finances, power supply and management practices) supported with other solid areas (customer relations, power sale contracts). Moreover, existing power supply and financial policies should provide long-term fundamental credit strength. The ratings further reflect the long-term all-requirements contracts with a large number of cooperative systems across a wide service territory, low-cost and efficiently operating base-load power resources (mostly coal fired), a solid balance sheet and cash flow strength, well developed management and board policies and the expected increasing value of the Dakota Gasification Company (DGC) subsidiary. Basin's wholesale power rates are currently very competitive for the region and are expected to remain favorable in the future.

Credit risks include the need to finance and build a significant amount of new base-load generation and related facilities to support rapid growth primarily associated with development of major energy projects, possible negative impact of new federal climate regulations for coal-fired plants and a large amount of current off-system power sales at attractive prices, which will be reduced over time, as Basin uses more of the excess electricity to meet its own customers' needs. Capital expenditure over the next 10 years could approximate $6 billion, which could result in lower financial metrics than recently experienced; but financial ratios should still be reasonable for the current rating category.

Key credit drivers going forward will include:

--Timely and economic construction of new generation resources (900 mw over next five years, equals an expansion of 25% of existing capacity).

--Natural gas prices. If prices are high, then value of DGC increases as well as ability to sell excess capacity from its base-load coal units.

--Base-load expansion plan (costs, timing). Impact of new members on new generation need. Potential exposure to climate control regulation (longer-term concern).

Basin is one of the largest electric generation and transmission cooperative (G&T) in the nation. Headquartered in North Dakota, Basin is a taxable not-for-profit G&T cooperative which serves members in nine states (ND, SD, MT, WY, NM, CO, NE, MN, and IA). Through its members, Basin serves 1.75 million people from its power supply portfolio which is derived from mostly coal fired owned generation resources. Basin has two significant for-profit subsidiaries which are Dakota Gasification Company (which produces synthetic natural gas and other byproducts) and Dakota Coal (which supplies coal to DCG and Basin).

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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